Ponzi Victims Can Sue, Supreme Court Says

In 2012, Robert Allen Stanford was convicted of running a Ponzi scheme that bilked investors to the tune of $7 billion. While that might be only a fraction of the $65 billion that Bernard Madoff got away with, it’s still about 10 percent of New York City’s budget for 2013.

Stanford was sentenced to 110 years in prison, but his victims demanded more than just jail time. While they couldn’t sue Stanford directly, they could, they argued, sue the firms that helped him to commit the fraud. Because federal law prevented such claims, they sued under California and Texas laws in class-action suits – lawsuits where many similar plaintiffs join together.

Not surprisingly, the firms fought back, saying the state claims were prohibited by federal securities laws. But on Feb. 26, the U.S. Supreme Court ruled in favor of the victims, saying that the Ponzi scheme did not involve securities covered under federal law. Stanford, as it happened, committed his crimes using certificates of deposit at an Antigua bank. Therefore, the Court said that state lawsuits were appropriate.

The Supreme Court’s 5-2 decision in Chadbourne & Parke v. Troice doesn’t mean that the victims of Stanford’s scheme will win their case. It does mean, however, that this case – as well as others like it – can proceed in state courts, perhaps allowing victims of financial fraud to recover some portion of their lost investments.